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Thomas Cook
India Limited is the leading integrated travel & travel related financial
services company in the country offering a broad spectrum of services that
include foreign exchange, corporate travel MICE, leisure travel, insurance,
visa & passport services and E – business. In, May 2012, 73 % stake of
Thomas Cook India Limited was acquired by Fairbridge Capital (Mauritius), a
wholly owned subsidiary of Toronto based Fairfax Financial Holdings Ltd which
is a financial services holding company with a global presence in insurance and
reinsurance and has a portfolio of assets in excess of $30 billion which are
invested worldwide and is owned by the legendary value investor Prem Watsa.
Thomas Cook India has strengthened its presence in the leisure segment by
acquiring Sterling Holiday Resorts (Sterling), which is one of the leading
timeshare and vacation ownership players owning 19 resorts with over 1,500
rooms in India. Thomas Cook India has a dominant position of share of more than 50 % in India's foreign currency bank notes exchange business which witness an volume of $1.8 billion from 2012. Both the forex and travel businesses have enduring competitve advantages and huge synergies which enables Thomas Cook India Ltd to deliver Free Cash Flow/Tangible Networth of more than 24 % a year. Fairfax has made its intention clear to use Thomas Cook India Ltd as Fairfax's investment vehicle in India for acquiring other great businesses. The brand name “THOMAS COOK” would be retained for 12.5 years starting from 2012.The management plans to consolidate all the leisure &
travel related businesses under Thomas Cook India Ltd, this is with a view to
effectively exploit the huge potential in the domestic tourism industry. The
acquisition of a 74.85 % stake in Quess Corporation (formerly known as IKYA) in
early May 2013 at Rs. 256 crore reflects Mr Watsa’s acumen as an astute
investor. Quess Corp was established in 2007 with the key aim to provide
business services with interests in human resources (recruitment & general
staffing), information technology staffing & services, facilities
management, food & hospitality services and training & skill
development through a combination of organic and inorganic methods. The company
also provides training services at entry levels leading to employment. Quess
Corp operates around 34 offices across 22 cities along with a presence in the
Middle-East and South East Asia, and employs 80,000 personnel with a client
base of more than 850 clients. Quess Corp has exponentially grown its
consolidated revenues to Rs. 1,401 crore in FY2014 from merely Rs. 49 crore in
FY2009 and now has emerged as a leader in multiple segments like human
resources (HR), office management and technology solutions. Quess Corp’s focus
is on annuity and recurring income business, which constitutes about 85 % of
its earnings before interest, depreciation, tax and amortisation (EBIDTA)
margin. Quess Corp had a compounded annual growth rate of about 85 % across last five years in Revenues, last year it did about Rs. 1,400 Cr in revenue with an EBITDA of Rs. 67 Cr. The headcount of the company has increased to 86,000 employees from
25,000 employees in FY2011. Quess Corp has received board approval relating to its long term funding needs and option that could also include coming out with an Initial Public Offering and if Quess is raising funds then it would be issuing new shares and this will not be an divestment for Thomas Cook. Given its exponential growth, strong cash flows and
healthy return ratios, it can be expected that it can be a huge value accretion
for the shareholders of Thomas Cook India Ltd. Sterling Holiday Resorts
(Sterling) is a pioneer in vacation ownership and leading leisure Hospitality
Company in India. Thomas Cook announced its merger with Sterling in February
2014. Sterling’s network includes 1,512 rooms across 19 resorts in 16 scenic
holiday destinations across India. The company also has 15 additional sites
where it plans to add new resorts in the coming years. Sterling Holiday Resorts
has improved its operating performance significantly after being acquired by Thomas
Cook in early 2014 and its revenues has grown by 32 % and operating loss
declined by almost 40 % in the first six months of FY2015. With a well
redefined turn-around strategy, the management has guided that the company
would turn profitable this year and significantly improve its margins in the coming
years. It can be expects the Sterling could post in revenue CAGR of 30 % and an
OPM of 28 % for Sterling by FY2017. Thomas Cook India has adopted for assets light model and
sterling has an asset heavy one, further, the aspect of utilisation of rooms
will now become the prime concern. Thomas Cook being one of the
largest integrated travel service companies in India with a strong positioning
in the organised tour operator segment and has strong footings in foreign
exchange (forex) and financial service business. It also has strong recognition
in the domestic market and enjoys an OPM of over 50 %. Thomas Cook’s travel
business focuses on outbound tourism and domestic corporate travel, which is
expected to improve on the back of an overall improvement in the domestic macro
environment. The company would also benefit from a shift from small unorganised
tour operators to organised tour operators due to better and unique travel
services provided by the latter. Hence, it can be expected that Thomas Cook
India Ltd.’s forex and travel service business to grow at about 20 % each in
the coming years.

Outlook and Valuation:

Thomas Cook
India Ltd is one of India’s top three travel service providers and the
country’s largest non-banking foreign exchange dealer, with an Authorized
Dealer Category II license from the RBI. The forex and travel services
businesses complement each other by creating marketing and distribution
synergies as well as cross-selling opportunities and scale benefits. The company has a strong backing of the promoter group
the FairFax group promoted by Prem Wastsas and he has experience of over
25 years & has demonstrated a strong financial track record to achieve an
annual appreciation in Book Value per Share of 24.7 % annually. He is also
known as Warren Buffet of Canada. Tours & Travels industry is a major
contributor to the world’s major economy’s including India. In Asia Pacific
region specifically, the direct contribution of Travel and Tourism to the
region’s GDP in 2012 was USD 614 billion which is 2.7 % of GDP and is estimated
to be at USD 646 billion in 2014. India and China are expected to emerge as two
of the leading tourism markets in next 10 years. The industry is showing signs
of recovery following the last economic recession, which saw falling demand for
tourism activity as consumers postponed trips to concentrate their household
budgets & on more essential areas. As disposable incomes rise and a social
trend towards travelling and exploring new destinations grows, the global
tourism industry is attracting greater number of consumers who are eager to
travel and experience life in other countries or just optimize time off work to
unwind by taking holidays. Industry analysts believe that an increase in vacation
ownership will also depend upon the prevailing economic climate. Membership
growth has been sluggish in past quarters due to the current financial climate,
as a person will only invest a few lakh rupees in time-share holidays and
vacation ownership if he has surplus cash. Indian economy is witnessing auto
sales falling and the property market not moving. These factors have an impact
on the resort business. Sterling Holiday was passing through trying times with
high debt till Bay Capital took it over in 2009. Since then, the company has
been making a return of sorts by refurbishing its resorts. It has increased
occupancy levels to 52 % from a lowest of 16 % a few years back. And with the
two rounds of equity infusion helped the company repay debt and renovate
existing properties.Post general election results, India has been a
talking point across the globe and this has helped India in huge surge in
foreign tourists coming to India both for business and leisure holidays. In
recent past India has been a laggard to attract foreign tourism when compared
to countries like Singapore or Thailand. Foreign tourism is likely to pick up
in India on all counts be its rich cultural heritage, exotic locations, medical
tourism or business related tourism. Government’s renewed focus on travel and tourism and
Swach Bharat Abhiyan is likely to boost Thomas Cook’s travel and travel related
financial services armwhich contributed around 25.50 % of
consolidated revenue in FY’14. Though it is a high margin business but it
suffers from wide fluctuations on account of foreign exchange movements. Thomas Cook India Ltd’s
acquisition of IKYA Human Capital Solutions Limited is yielding rich dividends.IKYA
has recently
signed an agreement to acquire Hofincons Infotech and Industrial Services Ltd.which
is headquartered in Chennai. The company employs more than 6000 people
providing a full spectrum of asset management services under operation and
maintenance, technology and consulting and facility management. It had reported
Revenue of Rs. 131.30 crores and PAT of Rs. 8.23 crores in FY’13. Thomas Cook is
expected to deliver strong set of numbers in FY’15 & FY’16 across its
business verticals as it leverages on its strong synergies across businesses
given the fact that sentiments have turned positive and economy looks poised to
return back on growth path. It can be expected from the company to rationalize
and get rid of overlapping expenses while achieving better operating
efficiency. Thomas Cook is a quality play on the huge growth opportunity in the
Indian leisure industry along with an exposure to the fast growing HR and
office management business. With an expectation of a 30 % plus growth over the
next three to four years and free cash flows exceeding Rs. 1,000 crore
cumulatively in the next three years, chances of Thomas Cook India getting re-rated. Any value unlocking in the Quess Corp would also
act as a key trigger for Thomas Cook India Ltd’s stock price. This leaves scope for a 40 %
upside in the next 9-12 months from the current levels factoring on fully
diluted equity capital of Rs. 36.45 crore.It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALS

FY14

FY15E

FY16E

FY17E

SALES (₹Crs)

1,702.40

3,130.80

3,558.30

4,387.00

NET PROFIT (₹ Cr)

65.03

166.70

229.50

368.90

EPS (₹)

2.66

5.60

5.00

8.10

PE (x)

45.12

27.80

38.50

24.00

P/BV (x)

6.40

3.40

4.40

3.70

EV/EBITDA (x)

27.90

17.00

15.10

9.90

ROE (%)

12.20

13.30

16.30

22.60

ROCE (%)

18.70

19.80

22.10

29.20

*As the author of this blog I disclose that I do not hold THOMAS COOK (I) ltd in my investment portfolio.

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blogyou agree to(i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

BERGER PAINTS INDIA LTD: The Company was founded in 1760
but started its business in Kolkata, India in the year 1923. Berger Paints
India Limited was established by Lewis Berger – who laid the foundations of the
brand Berger way back in 1760 in the UK, with modest beginnings in India in
1923, the company has undergone many change of hands – In the year 1947, it was
acquired by British Paints (Holdings) UK, which renamed the company as British
Paints (India). This UK Company was then acquired by Celanese Corporation,
which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In
1983, the company was renamed as Berger Paints India and it started using the
trade name of Berger. Presently, the majority stake is with the Delhi based
Dhingra brothers. Berger Paints engages in the manufacture and sale of various
decorative and industrial paints in India and internationally. The company
declared its very first bonus in ratio of 1 new for every 2 held on June 1967; 7
new shares for every 15 held on June 1973; 1 new for every 1 held on October
1998; 1 new shares for every 2 held on January 2004 and lastly 3 new shares for
every 5 held on June 2006. The company first announced the splits in its face
value of shares from Rs. 10 to Rs. 2 on March 2004 and then it again split its
face value of shares from Rs. 2 to Rs. 1 on November 2014. The company’s
products include interior emulsions, designer finishes, distempers, exterior
emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The
company also offers general industrial and automotive coatings, such as pre-treatment
chemicals, water base primers, polyester topcoats, polyester-metallic/pearl
basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats,
alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester
surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and
powder and protective coatings. It serves home owners, professionals, and
industrial users through a network of dealers. It has a wide variety of product
portfolio including interior and exterior wall coatings as well as metal and
wood paints. It has strong and well established brands like Berger Silk, Berger
Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also
provides colour consultancy services. Berger Paints has six subsidiaries and
two JVs located across geographies including Cyprus, Russia, Poland and Nepal.
Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger
Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, Lusako
Trading Ltd in Cyprus and Berger Paints Overseas ltd. The company is locally compared
with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited,
Jenson and Nicholson India Ltd, Jyoti Resins and Adhesive Ltd and Globally compared with Akzo Nobel NV of Netherlands, BASF SE of Germany, Dai Nippon Toryo Co of Tokyo, Dow Chemicals of USA, Schulman (A) Inc of USA, Kraton Performance Polymers Inc of USA, Sherwin Williams Co of USA, PPG Industries of USA, Kanto Denka Kogyo Co of Japan, Noroo
Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.

Investment Rationale:

Berger
Paints India Limited is the second largest paint company in the country with a
consistent track record of being one of the fastest growing paint companies,
quarter on quarter, for the past few years. This FMCG has one of the largest
networks consisting of 16,500 plus distribution channel members served through
135 stock points & 10 production units with about 170 Sales offices
including those belonging to the company’s own division and subsidiaries and
has employee strength of 2,500. It has 4 distinct business verticals namely
decorative coatings, protective coating, automotive coatings, Industrial and
Powder coatings with about 10,000 + products. It has business ventures or
technology transfer tie ups with various renowned paint companies in the world
like Nippon Bee of Japan and Becker Acroma spa of Italy. Berger Paints India
Ltd’s product has attained instant recognition worldwide and continues to meet
quality requirements that are demanded today in domestic markets. To meet the surging
demand of its brands, the company is undertaking huge expansion projects across
various locations in India. The company is confident that this new plant which
is strategically located and well connected to Bangalore, Hyderabad, Chennai,
kochi and Mumbai will be able to fully meet the increasing demand for water
based coatings in commercially important regions of India. The Company’s
products have been accepted well in 2013-14 and expect the same kind of support
from the customers in the near future also. It is expected that the company to
post a CAGR of 11 % & 12 % in its top-line and bottom-line over 2013 to
2016E respectively. There has been significant growth of water based coating
both for interior and exterior applications during the last 2 decades in paint
industry. This upsurge in demand has been specifically strong in the southern
region which provided to set up this new water based paints plant at Hindupur
for catering to the requirements of this important region with an initial
capacity of 80,000 tonnes per annum. The company starts production in the first
half of the current fiscal. Once fully completed, the capacity of the Hindupur
plant will be 3,20,000 MT per annum of water based paints and 1,00,000 MT per annum
of emulsions, used as intermediates for water based paints. The Jejuri plant
for industrial paints too is likely to commence operation this fiscal. Berger
currently has 11 manufacturing units in Bengal, Goa, Pondicherry, Andhra
Pradesh, Gujarat, Jammu and Delhi. The Indian paint industry is largely divided
into decorative and industrial segments. Decorative paints enjoy a market share
of 71 % and industrial paints have the balance of 29 %. Decorative paints can
be further classified into higher end acrylic exterior and interior emulsions,
medium range exterior and interior emulsions and enamel paints, low end
distempers, wall putty, primers and thinners and wood coatings. They can also
be broadly categorised into water and solvent based paints. Water based paints
have an edge and are growing at a higher rate because most paintable surfaces
in architectural constructions use water based coatings. It also has the added
advantage of being more environmentally friendly. Industrial paints, on the
other hand, comprise automotive including auto refinish, general industrial
including consumer durables, protective coatings, coil coatings and powder
coatings. As in the previous year, in the year 2013-14 too, paint industry
volumes as a whole continued to perform well with a growth rate, which is
estimated to be more than 2 times of GDP for decorative products. The
acceleration underscores the resilience of the industry - brought about by the
continuous efforts of the industry to open up new markets, introduce superior
products, extending the network and convincing the customers about the benefits
of more frequent painting of houses. No doubt, this also reflects growing
urbanisation, desires of an ever increasing middle class and reduction in
repainting cycle. Despite this, per capita consumption of paints in India is
now about 2.6 kg compared to the international average of 10 - 13 kg. The total
size of the market is roughly estimated at Rs. 35,000 crores. Given the much
anticipated recovery in urban sentiments, GDP revival and the expected fillip
to the economy, this may increase to more than Rs. 50,000 crores by 2016-17.
Industrial paint demand continued to be lukewarm with sluggish growth in the
infrastructure industries, particularly in automobiles, high inflation, a
rather tight money market and increase in prices of raw materials. However,
with the expected increase in infrastructure spending and recovery of the industry,
the Company believes that this sector will bounce back.

Outlook and Valuation:

Berger
Paints India Ltd (BPIL) is one of the largest paint company in India with its
premium brands viz., Breathe Easy, Silk and Weather coat Allguard continued to perform
well in all the markets. Berger paints India ltd is amongst top 30 paints
companies in the world with global footprints across continents. It is also
amongst the top 6th paint company in Asia. Berger Paints India Limited has it’s
headquarter in Kolkata, with 7 strategically located manufacturing units, and
over 85 sales offices, the company also has an international presence in 4
countries. Berger is the lone supplier to nuclear power plants with its
protective coatings in industries. And also supplies its products to
professionals and Home owners. In the
recent past, Indian economy had been growing at a rate of less than 5 %. In
spite of that, as mentioned earlier in this report, the paint industry in general
and Berger Paint in particular, continued to maintain their respective growth
trajectory, specifically in the decorative coatings segment. In the coming
times, the country will have to contend with issues of inflation control and
interest rates, current account and fiscal deficits, subsidies and non-plan
expenditure – all the time keeping an eye on eradication of poverty, attraction
of investment and generation of employment. The
paint Companies believes that these are problems which are surmountable with
will and tenacity. Several important policies had been stalled in the recent
past and once these are cleared, the paint Companies believes that the paint
industry will grow at an even faster pace. In infrastructure, it is reported
that out of the projects worth Rs. 22,000 billion & only one-third have
been revived in the recent past.In this
context, it is important to note that the global paints market is worth about $
121 billion (2012); with total production being 38 million metric tonnes (MT).
In the Asia Pacific region, water based (architectural paints) constitutes 65 %
by volume. The Indian paint industry volume and value, by comparison, has far
to go. Globally, by volume, the split is approximately 50 % architectural
paints and the remaining 50 % - industrial performance coatings. The Asia Pacific
region contributes 44 % paints and coatings market. India constitutes only 15 %
and China 57 % by volume of the Asia Pacific market. Thus, there is actually a
major opportunity of growth in both decorative and industrial segments in India. Recently on 18 February 2015,
Berger paints is planning to set up an industrial coating plant at Stavropol,
an industrial area in southwest corner of the Russian Federation, which houses
several automobile and manufacturing businesses. The company has signed a
memorandum of Understanding with Stavropol regional government in this regard.
The company has received 6 hectares of land at a very favourable price on a
nominal lease till 2030 and production is expected to start in 12 to 15 months.
The company will conduct a feasibility study for setting up a modern industrial
coating in the region and aims to satisfy the demands in Russia and develop
bilateral Co-operation. Berger Paints plans to begin with small investment and increase
it gradually and will employ 50 people with a target of 3,000 tonnes per year
and then scale up it up to 50,000 tonnes. Around $5 million will be invested to
set up the plant in Russia. The management has clearly stated that company has
taken care of Indian requirement for the next 5 years post setting up the
facility in Hindupur, Andhra Pradesh and will keep on investing in India as and
when needed, also the logistical issues in exporting of paint from India to
other countries is much more as paint is bulky and so company decided to set up
one plant to Russia. Berger Paints has plants in Nepal, Bangladesh, Poland and
the overseas turnover accounts for less than 5 % to the total turnover of the
company. On financial side the International business saw muted performance
impacted by one-off correction in Nepal and flat numbers in BJN India due to
consolidation and restructuring exercise in Sherwin Williams. Instability in
Ukraine impacted growth in Bolix S.A., while loss of customer in DIY segment
continued to impact Poland sales. BNB Coatings continue to show robust sales
growth, but Becker Coatings had a flat quarter. Company expects BJN India will
be through with its restructuring and will pick up from FY16, while growth in
Nepal is also expected to revive from next quarter. The Company’s Q3FY15
revenue was muted, but lower inputs led to higher EBITDA margins. Berger’s Revenues
were at Rs. 1,120 Cr, up 8.5 % YOY. The Gross margin was up 2.40 % YoY to 41.9 %
led by low input prices, erstwhile price hikes and better mix. But, EBITDA
margin expansion was lower at 0.60 % YoY to 13.3 % due to higher Ad spends. The
EBIDTA grew 13.3 % YoY to Rs. 150 Cr, but higher depreciation led to flat APAT
at Rs. 82.1 Cr. Berger’s reported tepid Domestic operations a 10.8 % YoY growth
to Rs. 990 Cr with volume growth at 6 % YoY. Growth in decorative paints was
lower due to sluggish demand and early festive season vs previous year. General
industrial & auto paints showed healthy growth trends and is expected that
the domestic growth to pick up, but in near term, industrial paint sector could
outperform decorative growth rates.Given the pricing power ability, it
is likely to have uptick in revenue CAGR. While volume growth was tepid, market
share gains and display of strong margin expansion is reassuring. It is expected
that the domestic growth to revive in ensuing quarters and strong margin
tailwinds to flow through in ensuing quarters. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also.

KEY FINANCIALS

FY14

FY15E

FY16E

FY17E

SALES (₹Crs)

3,869.70

4,350.90

5,209.20

6,437.60

NET PROFIT (₹ Cr)

249.40

278.60

429.30

566.00

EPS (₹)

3.60

4.00

6.20

8.20

PE (x)

60.50

54.10

35.10

26.60

P/BV (x)

13.50

12.60

11.40

10.20

EV/EBITDA (x)

35.00

29.30

20.40

16.00

ROE (%)

24.10

24.10

34.10

40.60

ROCE (%)

24.50

26.90

37.70

45.50

*As the author of this blog I disclose that I do hold BERGER PAINTS (I) LTD in my investment portfolio.

This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blogyou agree to(i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.

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BHAVIKK SHAH's BLOG

This blog is from Bhavikk Shah. A witty brain who works at Capital Market Firm. He is regularly sought for his fundamental perspective on markets by his friends & followers, so here comes this Blog... BHAVIKK an humble in nature, simple by heart, a keen reader, a thinker & a person who is open to new ideas that promote growth & development...invites you to add yourself and your views to this blog to share.

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DISCLAIMER :

This is a personal blog about personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. By using/reading this blogyou agree to(i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.